At the end of July, Banesto, BBVA and Santander reported very positive Q2 results, with BBVA describing them as “its best ever”. At Santander UK profits are up by 30% and it seems to be integrating three UK Building Societies with comparative ease.

Do these achievements in Spain mean that UK financial institutions could benefit from examining the approach of the big Spanish banks? Once derided as an over-cautious approach to retail banking, the Spanish strategy is now often proposed as a cure-all for the European banking system. The UK sector may see itself as a mature market, because of the high levels of competition and international experience collected together in the City of London, but perhaps large UK financial institutions should ask themselves how they can tap into what Forrester describes as Spain’s “large, well-qualified IT labour pool [and] world-class vertically-focused services resources”? Perhaps we should look at the secrets of Spanish success; is it all down to regulation, risk management and efficient platforms?

 
Regulation?

It’s not just about the people. The Spanish government responded to the fallout from reckless industry loans in the 1980s with tighter central bank control towards the end of the decade. It seems that just as the UK was freeing up its financial markets and regulation, in Spain they were facing a ban on off-balance vehicles and an insistence on making extra provision during boom times. As UK retail and investment banks took on greater exposure and secured greater income, the regulation and compliance in Spain ensured that its banks had solid foundations.
 

Risk Management?

It’s true that many smaller savings banks in Spain have been hit hard by bad debts resulting from loose mortgage lending, however the approach of the larger banks to risk management might have been seen as over-kill even relatively recently. The creation of substantial, well remunerated and long-term risk committees, which met regularly, differs from the UK where the Chief Risk Officer has all too often been a bolt-on, fleeting solution. UK banks might now do well to heed the words of Emilio Botín (Chairman, Banco Santander), who as far back as last year commented; “[risk management] consumes a lot of our directors’ time. But we find it essential. And it is never too much.”
 

Efficient platforms?

Real-time retail banking, rather than next day (mañana) reconciliation, has already arrived in Spain. Investment in modern platforms means that the Spanish consumer has access to real-time reconciliation of their personal financial information via multiple channels, including the ATM, whilst the UK consumer is still reliant on end of day reconciliation. This focus on home market customers would have sounded very old-fashioned just a few years ago, as UK banks chased ever more complicated offerings. Today José Antonio Alvarez’s recent comment looks sagacious.

“What matters to us is to have a customer on the other side and to provide a service”. (CFO, Banco Santander) So perhaps UK banks could benefit from tapping into the Spanish solution and considering a new approach to regulation, risk management and investment in technology platforms. City financial institutions could shake off the mañana approach to efficient banking during this difficult economic period and take advantage of the expertise and style of their Spanish counterparts.